What is the portfolio expected loss

Reference no: EM132174156

Question - Consider the large homogenous pool approximation model (see LHPA s/s) with recovery rate fixed R = 0% on a 5 year horizon. Each individual asset trades at a par spread of 150bps.

a) What is the portfolio expected loss?

b) Given a base correlation 10% on [0%-3%] and 20% on [3%-7%] tranche compute the expected loss and fair spread.

c) Now assume [0%-3%] trades at a par spread of 30% and [3%-7%] trades at par spread of 5%. What is the base correlation.

d) What is the delta of the equity tranche with respect to the index?

e) What is the delta of the equity tranche with respect to the mezz tranche?

f) Given fixed correlation 20% show what is the effect of increasing index spread on equity and supersenior tranche.

Reference no: EM132174156

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